David A. Gitlitz, et Ux., et al. v. Commissioner of Internal Revenue (531 U.S. 206)
U.S. Supreme Court · decided January 9, 2001 · Supreme Court Database (Spaeth)
- Citation
- 531 U.S. 206 · 121 S. Ct. 701
- Decided
- January 9, 2001
- Term
- October Term 2000
- Vote
- 8–1
- Majority author
- Justice Thomas
- Issue area
- Federal Taxation
- Disposition
- Reversed
- Outcome
- Petitioning party won
- Ideological direction
- Conservative
Opinion excerpt
Justice Thomas delivered the opinion of the Court. The Commissioner of Internal Revenue assessed tax deficiencies against petitioners David and Louise Gitlitz and Philip and Eleanor Winn because they used nontaxed discharge of indebtedness to increase their bases in S corporation stock and to deduct suspended losses. In this case we must answer two questions. First, we must decide whether the Internal Revenue Code (Code) permits taxpayers to increase bases in their S corporation stock by the amount of an S corporation’s discharge of indebtedness excluded from gross income. And, second, if the Code permits such an increase, we must decide whether the increase occurs before or after taxpayers are required to reduce the S corporation’s tax attributes. I David Gitlitz and Philip Winn were shareholders of P. D. W. & A., Inc., a corporation that had elected to be taxed under Subchapter S of the Code, 26 U. S. C. §§ 1361-1379 (1994 ed. and Supp. III). Subchapter S allows shareholders of qualified corporations to elect a “pass-through” taxation system under which income is subjected to only one level of taxation. See Bufferd v. Commissioner, 506 U. S. 523, 525 (1993). The corporation’s profits pass through directly to its shareholders on a pro rata basis and are reported on the shareholders’ individual tax returns. See § 1366(a)(1)(A). To prevent double taxation of income upon…
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